Central Bank maintains rates in April

At its meeting on 12 April, the Central Bank decided to keep the Base Rate unchanged at 3.50%, where it has been since January 2023.

The decision not to cut interest rates was primarily influenced by ongoing high inflation, uncertainty regarding the path of global monetary policy, and exchange rate volatility. Additionally, the domestic economy showed signs of improvement, mainly driven by exports and favorable labor market conditions, which supported the Central Bank's decision to uphold its restrictive policy stance. On the flipside, further monetary tightening was not warranted given that core inflation has trended down in recent months, despite remaining above the Central Bank’s 2.0% target.

The Central Bank indicated that it will maintain a restrictive monetary policy stance for a sufficient period until it is confident that inflation will converge on the target level. Most of our panelists expect rate cuts to ensue from Q3 this year, with over 50 basis points of cuts expected by end-2024.

On the outlook, United Overseas Bank’s Ho Woei Chen said: “We maintain our call for the BOK to begin cutting its interest rate only in 3Q24, likely in Aug rather than Jul. We pencil in 25 bps cut each in 3Q24 and 4Q24 to bring the rate to 3.00% by end-2024.” Goldman Sachs analysts see rate cuts coming slightly earlier: “The Governor highlighted data dependence for the next 1-2 months (May and June) to evaluate and possibly confirm underlying inflation trends. We continue to expect the BOK to start its cutting cycle with a 25bp cut in Q3, most likely July, followed by another 25bp cut in Q4.”

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